The Changing Trends in the International Airline Industry How is Ireland being affected by Changes in the Marketplace? Dr John Frankie O Connell First Annual Tourism Policy Workshop Dromoland, 2010
Agenda The General trend of the Airline industry The rise of the low cost carriers An insight into the Irish Market The Irish Air Travel Tax Ryanair v Aer Lingus The US Ireland Open Skies policy The impact on Shannon airport
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Billions of Passengers 1.13 1.15 1.14 1.23 1.3 1.4 1.45 1.47 1.56 1.67 1.64 1.63 1.69 1.88 2.02 2.19 2.34 2.37 Number of passengers carried worldwide (1991 2008) 2.5 2 1.5 1 0.5 0 Source: ATA, AAPA, AEA, AACO, ICAO
Growth in passenger traffic 2003-2008 Passengers Transported* 2003 2008 % change Full Service Airlines 1.3 billion 1.6 billion 23% Low Cost Carriers 178 million 495 million 178% Regional Airlines 147 million 204 million 39% Charter Airlines 83 million 43 million -48% Total 1.7 billion 2.3 billion 35% * Share by top 200 world airlines Source: Airline Business August 2004 and August 2009
Change in passenger traffic 2000-2008 Passengers 2000 Passengers 2008 % Change (millions) (millions) North America 726 847 17% Europe 420 667 59% Asia-Pacific 378 620 64% Central/South America 82 116 41% Middle East 44 86 95% Africa 29 39 35% Total 1.67 billion 2.37 billion 42% * Share by top 200 world airlines Source: Airline Business, August 2000 and August 2009
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9F 10F US$ Billions Net Profit/Loss for World Commercial Airlines 1978-2009 $15 $10 $5 $0 $-5 $-10 $-15 $-20 Source: IATA and ICAO
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2010 % Change in Passenger Traffic year over year % Change of GDP year over year Global Growth in Passenger Traffic and GDP 1971-2010 14% 8% 12% RPK Growth 7% 10% 8% 6% 4% 2% 0% -2% GDP Growth 6% 5% 4% 3% 2% 1% -4% 0% World GDP growth World scheduled airline RPKs Source: ICAO, IATA and Economist Intelligence Unit, December 2008
% change over year Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Source: IATA, CPB Netherlands Oct-09 Jan-10 Premium passengers and world trade growth 15 10 5 Trade of goods in developed countries 0-5 -10-15 -20 Premium passenger numbers -25-30
Lets zero into the European market
Europe s Low Cost Carrier market Low Cost Routes 2000 Low Cost Routes 2008 Source: CAA Short-Haul fleet for Network and Low Cost Carriers (October 2009) Leading LCCs Current fleet Firm orders Options Leading Euro - Majors Current fleet Firm orders Options e asyjet 168 69 88 Air France 147 16 19 Ryanair 202 110 102 Lufthansa* 158 62 50 Air Berlin 86 124 50 British Airways 102 9 136 Wizz Air 22 115 12 Iberia 81 10 63 SkyEurope (Gone) Alitalia (28 MD-82s) 137 10 - SAS (33 MD-82/87) 84 3 15 Total orders of leading LCCs 478 418 252 Total orders of leading Majors 709 110 283 * Includes 17 firm orders for Embraers with options for 50 more Source: ACAS, ATI
Low cost carrier influence in Europe s markets 2008 data Spain - UK Germany - Spain Ireland - Italy Germany - Italy Germany - UK France - UK Italy - UK Italy - Spain France - Germany Netherlands - UK Austria - Germany Germany - Switzerland Poland - UK Portugal - UK France - Switzerland Germany - Sweden Germany - Poland 0 0.5 1 1.5 2 2.5 3 Millions of seats Scheduled Airlines (not LCC) LCCs LCCs offer 60% more seats than legacy carriers to Europe Source: Airbus General Market Forecast, 2009
Market share of Low Cost carriers on intra-european routes September 2008 data Spain UK Ireland Poland Italy Germany Portugal Czech Republic Norway Austria Sweden Hungary Switzerland Netherlands Denmark France Greece Belgium Finland Average 42.8% 0% 10% 20% 30% 40% 50% 60% 70% Seat Capacity In 2003 Low Cost Carriers represented just 17% of the European market Source: OAG data
Irish Market
Millions of passengers 1998 1999 2000 2001 Irish Airport Traffic Annual Passengers 2002 2003 2004 2005 2006 2007 2008 2009 2010F 35 30 3.6 3.1 25 20 15 10 5 2.4 2.4 2.4 2.3 2.1 2.2 1.6 1.8 1.8 1.8 1.5 1.3 11.6 12.8 13.8 14.3 15 15.8 2.4 2.2 17.1 3.3 2.7 18.4 3.6 3 21.1 3.2 3.2 23.3 23.4 2.7 2.7 20.5 2.3 2.4 18.5 0 Dublin Cork Shannon Forecast Equation for 2010 GDP RY = i GDP Ci * GDPE Ci * MS RCi
Airline Market share at leading Irish Airports Month of April 2010 Dublin 42.7% 39.9% 17.4% Cork 61.4% 27.9% 10.7% Shannon 27.7% 63% 9.3% Knock 10.7% 65% 24.3% Kerry 100% 0%% 20%% 40%% 60%% 80%% 100%% Airline Seat Capacity Aer Lingus Ryanair Others 80% of Ryanair s routes are outside Ireland
Irish Domestic Market 2009 data 52% is used on the Dublin Cork route (231km) 38% on PSOs (up for renewal in 2011) 10% is miscellaneous (Shannon Dublin and aircraft repositioning)
Number of flights per week between Dublin and Cork Taken for first week of May, each year 2000 2004 2008 2009 2010 Aer Lingus 34 Aer Arran 6 55 31 16 6 Air Wales 13 Ryanair 33 33 21 Total 40 68 64 49 27 Source: OAG Max
Glasgow to Barra service This is really what the PSO routes were designed for
This is what PSOs are designed to do
Public Service Obligations (PSOs) EU law permits member states to subsidise certain domestic routes so that adequate air services are made available to regional airports enacted under EU Council Regulation No 2408/92. Ireland has six PSO routes, while France has more than 160 Irish PSOs are handed out on a three-year contract basis: - Ryanair successfully tendered for the Dublin-Kerry route only...aer Arann lost this - Aer Arann successfully tendered for the Dublin-Derry; Donegal; Galway and Sligo - CityJet tendered for the Dublin-Knock route which later reversed to Aer Arann These PSOs will cost the taxpayer around 45 million for the 3 years equal to around 100 per passenger. There is also 2 million of operational grants given to regional airports. The roads and rail services have vastly improved over the years. Could Aer Arann survive without subsidies? - It operates 16% of its network as PSO routes
What do you think of the 10 Irish Air Travel Tax??
Research by Amsterdam Aviation Economics (November, 2009) Aer Lingus, Ryanair CityJet 1 Overall Results (All Airlines) Forecasted Revenues 96m 116m from Travel Tax evenue Losses as a result of the tax Airlines 60/ 114m Airports 34/ 38 Tourism Industry 292 / 330 Total Revenue loss estimated at 386/ 482 1 These 3 airlines account for 83% of air travel passengers to and from Ireland
Further Repercussions of the Air Travel Tax Airlines will absorb the Tax themselves Airlines will have absorb between 50% - 95% of this tax more pressure on the finances of EI Cost the Tourism Industry 292 / 330 3,000 jobs will be lost Visitors spent about 64% of their holiday money on Bed & Board and Food & Drink 1 in 2008 which has a huge knock-on effect on hotels, restaurants & bars Cost the Govt 50 million (reduced income tax and social welfare payments) Government looses out on VAT receipts Both locals and Tourists pay a 13.5% VAT on food and accommodation while they pay 21.5% on all alcoholic and non-alcoholic drinks 1 Figure from Fáilte Ireland s tourism facts 2008.
Dutch Travel Tax The Dutch government introduced a travel tax on 1 st July 2008-11.25 to 45 per pax The tax was expected to raise around 300 million ($395m) a year but a commissioned report concluded that it would cost the Dutch economy 1.3 billion in lost revenue. It was applicable only to departing O&D passengers and not transfer passengers.
Dutch Travel Tax The government abolish its aviation departure tax at the end of June 2009 To encourage new services, and to help retain existing ones Amsterdam Schiphol airport recently announced a freeze on airport fees until at least 1 April 2010 Source: Schiphol Group data
Travel Tax in other countries has also been removed 1. The Belgian Government scrapped its air passenger tax. 2. The Greek Government reduced its regional airport charges to zero for 2009. 3. The Dutch Government has repealed its air passenger tax. 4. The Spanish Government has announced a zero rate of airport tax for airlines that maintain or grow traffic.
Whatever will be the outcome here?
Aer Lingus Shareholder Base (2010) Employees 3.4% Free Float 24.6% ESOT 9.9% Dennis O'Brien 2.1% Government 28.2% Pilots 2.2% Ryanair 29.8% No airline will be interested in Aer Lingus because of its complex ownship structure It entitles Ryanair to interfere with Aer Lingus every move
Ryanair a major shareholder should be working with Aer Lingus?? July 2007 - Aer Lingus announces it will open a base in Belfast September 2007 - Ryanair announces that it will open a base in Belfast Summer 2009 - Aer Lingus launched 12 routes from Gatwick (2 to Ireland) Summer 2009 - Ryanair increases its number of destinations from Gatwick to 8 Summer 2010 - Ryanair will start seven new routes from Cork in June. Six of them will compete with services flown by Aer Lingus Ryanair will not allow in another low cost carrier into its back yard:- easyjet began London Gatwick to Shannon services in January 2005. Ryanair responded by also starting both Gatwick and Luton services to Shannon by May 2005 and also increased frequency from Stansted easyjet pulled off the Gatwick-Shannon route in the summer of 2006
Aer Lingus short haul route network 2009/10 Short-haul point-to-point 2001 2009/10 Number of Routes 31 84 Number of Aircraft (S-H) 33 30 Number of Aircraft types 4 1
Passengers Seasonality of Traffic for Aer Lingus Monthly Passengers 1,200,000 1,000,000 800,000 600,000 & $ $ & $ & $ $ $ $ $ $ $ $ $ 400,000 200,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 $ 2009 & 2010
Weekly Flights between Ireland to selected EU countries July, 2000-2009 Ireland - France Ireland - Germany Ireland - Spain 2000 2009 2000 2009 2000 2009 Aer Lingus 49 59 40 51 2 78 Ryanair 26 61 7 44 0 83 Others 28 71 13 24 10 7 Total 103 191 60 119 12 168 Source: OAG
The US Irish market On a historical note, the obstacles to Open Skies between Ireland and the US were placed there by Ireland US Airlines were not allowed to serve the Dublin-US route directly for decades until that changed in 2008 The Shannon stop-over caused much frustration to US carriers as they wanted to serve Dublin directly. Continental Airlines indicated that the Shannon Dublin cost it an extra $2 million per year in costs The US market has so much potential 40 million Irish Americans American firms in Ireland employ 95,000 people, while Irish firms employ 80,000 in the US In 2005 over 500,000 Irish citizens visited the US, putting Ireland in the top 10 countries in terms of visitor numbers to the US Aer Lingus carried 1 million passengers a year to the US, but the US market is responsible for three-quarters of its losses
Open Skies between the EU and the US The impact on Ireland Skies open in March 2008
Ryanair had 36 bases across Europe - mid 2009 Opportunity now exists to operate to the US
Weekly Flights between the US and Ireland for July 2000-2010 2000 2004 2006 2008 Aer Lingus 53 47 44 61 2010? 41 Delta 14 7 21 28 21 Continental 14 14 21 21 25 US Airways 14 14 12 7 American Airlines 14 7 7 Others 6 0 0 0 0 Total 87 82 114 129 101 Source: OAG
US Ireland change in airport dynamics Potential Problem for the Munster region Data for July, 2004, 2008 and 2010 2004 2008 2010 US Flights to Shannon 50% 31% 28% US Flights to Dublin 50% 69% 72% Many Americans get only 2 weeks vacation per year and may have only the time to visit Leinster/Connaught provinces, thereby pressurising tourism in the Munster region Continental Airlines are dropping Bristol in Nov 10 after serving it for 5 years US carriers want to go from major city to major city Source: OAG
Seat Capacity Market share of the major Airlines serving Shannon 2001-2010 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Ryanair Aer Lingus Continental Airlines Delta Air Lines 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: OAG
Conclusion Airline traffic and revenues are cyclical Low cost carriers will continue to dominate the European market The money that is spent on PSOs could be used elsewhere Aviation tax should be scrapped immediately The future of Aer Lingus remains uncertain US flights will increasingly operate to Dublin
Thank you all very much